Merge Vertices & Loop Cut
Scaling to 0 does not affect the underlying topology of your mesh, meaning that you still have the original 3 points, and all your faces are still quads, in your mesh. So the loop cut can be completed. 

However, when you merge vertices, this changes the topology and effectively creates only 1 vertex out of the 3 original, thus creating triangular faces that cause the loop cut to stop when it hits a triangle.